|By Martinne Geller

(Reuters) - Reckitt Benckiser Group Plc <RB.L> is in advanced talks to buy Mead Johnson Nutrition Co <MJN.N> in a $16.7 billion deal that would take the British consumer goods maker into the baby formula market and boost its business outside Europe.

Best known for its Lysol cleaners, Durex condoms, Nurofen tablets and Scholl footcare products, Reckitt said late on Wednesday it was discussing a $90 per share cash offer, a 29.5 percent premium to Mead's closing price.

Mead shares were up 24 percent at $86.39 on Thursday in New York. In London, Reckitt shares were up 4 percent at 7,102 pence, as enthusiasm over the deal's potential to lift profits overshadowed questions around price and strategy for going up against tough rivals Nestle <NESN.S> and Danone <DANO.PA>.

"The shares are up because the deal as mooted is likely to be meaningfully EPS (earnings per share) enhancing," said Philip Haworth, investment manager at Kames Capital, which owns Reckitt shares.

"That alone doesn't mean it is a good deal but management at RB have earned the right to be given the benefit of the doubt and to explain the strategic benefits to shareholders."

A deal would be the latest in a series involving UK companies since the year began, as they consider options following the country's vote to leave the European Union.

Reckitt said "the parties are presently engaged in a period of due diligence and contract discussion". It said a further announcement would be made as appropriate.

Mead, which also confirmed the talks, is the world's No. 2 infant formula maker with its Enfamil brand. It was spun off from U.S. drugmaker Bristol-Myers Squibb <BMY.N> in 2009.

It has been seen as a possible takeover target due to its big presence in China and Latin America, regions with fast-growing populations, as well as in the United States.

Reckitt has a long history of successful deals, but its interest in consumer health products, such as over-the-counter medicines, had led to speculation about other potential targets such as the consumer portfolios of GlaxoSmithKline <GSK.L>, with its Sensodyne toothpaste, and Pfizer <PFE.N>, maker of Centrum vitamins and Advil tablets.

With those deals apparently out of reach, and Reckitt's core business slowing amid weakening economies and a boycott in South Korea due to a safety scandal, a move for Mead is logical, analysts and bankers said.

"It's a branded consumer proposition with healthcare-y attributes," said RBC Capital Markets analysts, adding the absence of any product overlap meant antitrust scrutiny would be minimal.

Nestle paid 20 times for the Wyeth baby formula business in 2012 and Danone paid 22 times for Numico in 2007.

Still, the premium is in line with other recent consumer staples deals, and is appropriate given regulatory changes in China and price promotion, analysts said.

Mead's share price has fallen by a third over the past two years, as sales have slowed and it lost market share. Its biggest market, China, has seen intense local competition amid a shift in buying habits away from traditional retailers into e-commerce and specialty stores.

BETWEEN FOOD AND MEDICINE

Bernstein analysts, who see the deal boosting Reckitt's earnings by 12 percent in 2018, said the move from "health and hygiene" into "infant nutrition" was not a big leap, considering the grey area between food and healthcare that Nestle has also been exploring, with its Health Sciences unit.

Reckitt said it expected to finance the deal through cash and borrowings, which could boost its debt to as high as 4 times EBITDA, according to Steve Clayton, fund manager at Hargreaves Lansdown Select.

Yet he expects it to be able to pay that down quickly, as the combined business benefits from Reckitt's proven ability to build brands and its existing relationships with pharmacies and supermarkets.

Sources told Reuters in 2014 that Danone was interested in Mead, but the French company is now buying soy milk maker WhiteWave <WWAV.N>, reducing the chances of a counterbid.

Recent press reports have suggested Nestle might make a move for Mead, but the Swiss group could be put off by potentially having to sell parts of its existing baby formula business to appease competition regulators, sources said, noting also that private equity firms would struggle to compete against Reckitt.

Bernstein analysts said buying Mead could spur Reckitt to make the often-speculated sales of its home and food businesses, which they said could fetch around 8 billion pounds ($10.2 billion).

They said Unilever <ULVR.L> or Henkel <HNKG_p.DE> could be interested in the home business, while the food business, which includes French's mustard and Frank's hot sauce, could be attractive, too.

(Additional reporting by Simon Jessop and Pamela Barbaglia in London and Lauren Hirsch in New York; Editing by Jason Neely and Mark Potter)